sales.
“As you know,” she continues, “we don’t sell to shops, we sell to industries that need high pressure steam. There are more and more technological improvements in our field, and some new products, but nothing close to what Bob has—some of our designs are ten years old. The problem is that competition is so fierce that often, in order to penetrate, we have to sell the initial equipment for our raw material cost. We make our money more and more on the additions and spare parts. They are still quite lucrative.”
“Is your supply of spare parts adequate?” Don asks.
“No,” Stacey admits, “not at all. Oh, we have mountains of spare parts, all over the place. But too often it’s not the right part in the right place, and then the clients are all over us.”
“Could Bob’s distribution system help you, as well?”
“It might. That’s why I asked for the logical trees of it. We would have to do many adjustments; our situation is quite different. Responding ninety percent of the time is not sufficient. You see, whenever a client needs a spare part from us and we can’t deliver immediately, we are shutting down part of his operation. I need to bring my response from what it is now, about ninety-five percent, to almost one hundred percent.
“It’s clear we can do a better job. We have to reexamine the levels of inventory that we’re holding in our regional stocks. I think by following Bob’s concepts I can vastly improve.” Turning to me she adds, “Alex, better service on spare parts will not be sufficient to solve my sales problem. I need a real breakthrough idea.”
“You said that the prices for spare parts are quite lucrative,” Don hesitantly starts.
“Yes, I did,” Stacey confirms. When she realizes that Don is reluctant to continue, she encourages him. “Come on, speak up. Many times an outsider can come up with an idea that we, so entrenched in the way things are always done, are too blind to see.”
“It’s probably nothing,” he continues, “but I thought that you sell the basic equipment for only raw material cost, just to get a foot in the door.”
“That’s also correct.”
“Does it mean that the company who sells the basic equipment to a client has, for all practical purposes, a monopoly on the spare parts that client will need?” Don sounds much more confident.
“You are absolutely right,” Stacey answers. “Each company has its unique designs. You sell the basic system and the client is locked into buying additions and spare parts from you.”
“Well, can you get ahold of your competitors’ designs? I assume that technically you can produce them. The differences between theirs and yours cannot be so big.”
“So that’s what you mean,” Stacey sounds disappointed. “To your question, Don, not only can we get hold of their designs, we’ve already done it. And yes, we can technically and legally produce their spare parts. So what are you suggesting?”
“For you to offer their clients the appropriate spare parts,” he says much less confidently. “But it’s obvious that you’ve already thought about it. Why won’t it work?”
“Simple, Don,” she answers. “Why would their clients buy from us? Because we’ll offer it at a slightly lower price?”
“Yes, I see,” he breaks in, “and then your competitors will do the same to you, and the result would be a price war.”
“And if there is something,” Stacey concludes, “that we have to avoid at all costs, it’s a price war.”
“Sorry, it was a dumb idea.”
“Not so dumb,” Stacey smiles at him. “If we’ll succeed in properly implementing the equivalent of Bob’s distribution system, and we have time to establish an outstanding reputation in spare parts supply, then your idea might work. The problem is that building such a reputation takes years, and we have months.”
“Fellows,” I slowly say, “we need marketing ideas. Something that will differentiate us, that will
“As you know,” she continues, “we don’t sell to shops, we sell to industries that need high pressure steam. There are more and more technological improvements in our field, and some new products, but nothing close to what Bob has—some of our designs are ten years old. The problem is that competition is so fierce that often, in order to penetrate, we have to sell the initial equipment for our raw material cost. We make our money more and more on the additions and spare parts. They are still quite lucrative.”
“Is your supply of spare parts adequate?” Don asks.
“No,” Stacey admits, “not at all. Oh, we have mountains of spare parts, all over the place. But too often it’s not the right part in the right place, and then the clients are all over us.”
“Could Bob’s distribution system help you, as well?”
“It might. That’s why I asked for the logical trees of it. We would have to do many adjustments; our situation is quite different. Responding ninety percent of the time is not sufficient. You see, whenever a client needs a spare part from us and we can’t deliver immediately, we are shutting down part of his operation. I need to bring my response from what it is now, about ninety-five percent, to almost one hundred percent.
“It’s clear we can do a better job. We have to reexamine the levels of inventory that we’re holding in our regional stocks. I think by following Bob’s concepts I can vastly improve.” Turning to me she adds, “Alex, better service on spare parts will not be sufficient to solve my sales problem. I need a real breakthrough idea.”
“You said that the prices for spare parts are quite lucrative,” Don hesitantly starts.
“Yes, I did,” Stacey confirms. When she realizes that Don is reluctant to continue, she encourages him. “Come on, speak up. Many times an outsider can come up with an idea that we, so entrenched in the way things are always done, are too blind to see.”
“It’s probably nothing,” he continues, “but I thought that you sell the basic equipment for only raw material cost, just to get a foot in the door.”
“That’s also correct.”
“Does it mean that the company who sells the basic equipment to a client has, for all practical purposes, a monopoly on the spare parts that client will need?” Don sounds much more confident.
“You are absolutely right,” Stacey answers. “Each company has its unique designs. You sell the basic system and the client is locked into buying additions and spare parts from you.”
“Well, can you get ahold of your competitors’ designs? I assume that technically you can produce them. The differences between theirs and yours cannot be so big.”
“So that’s what you mean,” Stacey sounds disappointed. “To your question, Don, not only can we get hold of their designs, we’ve already done it. And yes, we can technically and legally produce their spare parts. So what are you suggesting?”
“For you to offer their clients the appropriate spare parts,” he says much less confidently. “But it’s obvious that you’ve already thought about it. Why won’t it work?”
“Simple, Don,” she answers. “Why would their clients buy from us? Because we’ll offer it at a slightly lower price?”
“Yes, I see,” he breaks in, “and then your competitors will do the same to you, and the result would be a price war.”
“And if there is something,” Stacey concludes, “that we have to avoid at all costs, it’s a price war.”
“Sorry, it was a dumb idea.”
“Not so dumb,” Stacey smiles at him. “If we’ll succeed in properly implementing the equivalent of Bob’s distribution system, and we have time to establish an outstanding reputation in spare parts supply, then your idea might work. The problem is that building such a reputation takes years, and we have months.”
“Fellows,” I slowly say, “we need marketing ideas. Something that will differentiate us, that will
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